The Gold Report: Going back to your time as a fund manager in the ’80s on Wall Street, how does what was happening then compare with what is happening now?
Peter Grandich: It’s dramatically different. The biggest change is that the game is stacked against the average investor more so than at any other time. For example, the mortgage debacle a few years ago was equivalent to all the big car companies manufacturing cars that they knew were going to crash and buying life insurance on the people that they sold the cars to knowing that they would die so they could collect on both ends. That’s what the financial institutions did. Those people are still in charge of the game. I take exception when I hear people talking as if the game is fair and the average person has a reasonable chance.
TGR: One revelation in your book is that your struggles led you to a belief in Christianity. Does your spiritual life influence your investment decisions?
PG: Yes. There’s far less chance of me pushing the envelope and touching the gray area-or even going into the red area.
TGR: Another theme in the book is about being wrong and accepting that as an investor. Could you talk about the psychological pitfalls of investing?
PG: I could write a book about losing. The ultimate crime of investing is not being wrong. The crime is staying wrong and that happens to a lot of investors. They institute the worst investment strategy and simply hope things will change. Hope is a wonderful spiritual strategy but a very bad investment strategy.
The majority of investors usually can withstand the financial risk that they’re taking, but greatly underestimate the mental anguish that can come from the downside of what their investments or speculations/gambling will bring. Wall Street created the word “speculating” so that it doesn’t have to use the word “gambling,” but it’s gambling. You have to be prepared to lose part or all your money when you gamble and I don’t think most investors are. They think of the best possible scenario and never think of the worst.
Most investors don’t operate with a real plan either. That’s why they lose over time because they don’t have a written strategy and instead choose emotions and day-to-day, seat-of-their-pants thinking.
TGR: At the Cambridge House investment conference in Vancouver, you said that you don’t look fondly upon the economic outlook for the U.S., but you remain bullish on some foreign markets, especially China. China’s markets lack transparency and even some Chinese companies listed on North American markets have proven to be less than trustworthy. Are you sending investors into the lion’s den?
PG: It’s foolhardy to think that the U.S. is the safest place and China’s the worst place to invest in equities. There’s no question that China’s going through some growing pains. But there are also shady things that go on here in the U.S. that don’t get reported or are twisted.
It’s no longer a question of if China will become the world’s largest economic power, but when. To not have exposure to Chinese equities over the next several years would be like not getting exposure to U.S. equities during our greatest growth in markets from the ’50s-’90s. And right behind China will follow India. If we don’t have exposure to China and India and the companies that do business there over the long term, we’re shortchanging ourselves.
TGR: How should investors get exposure to China without getting exposed?
PG: The simplest, safest way is through exchange-traded funds or mutual funds that specialize in a group of stocks to avoid getting caught in one particular stock or style of business.
TGR: What are some Chinese investment themes that perhaps investors can piggyback on?
PG: China has a tremendous need for resources. That appetite is not going to disappear anytime soon. It’s underpinning the commodities bull market, in particular steel and iron ore.
TGR: I read a report recently that said China was seeking alternative sources of iron ore for its smelters as part of an effort to limit its reliance on iron ore from Australia and Brazil. China’s looking to northeastern Canada in the Labrador Trough. Do you know anything about that?
PG: A couple of my clients are there and some of my largest personal holdings are there. The Labrador Trough is probably the most interesting play in the world right now.
There is some serious talk that Quebec’s government and the Chinese may expand infrastructure in the far north, where there presently isn’t much now.
TGR: You expect the U.S. dollar to weaken once attention shifts away from the troubled euro. At that point, do you expect gold to have a sizeable run?
PG: I have called this the mother of all gold bull markets. I don’t think we’ll see a bull market like this again in our lifetime. However, it’s also been the most stealth bull market. North Americans, and particularly Americans, have shown little or no participation, yet the price has increased five to six fold. All the fundamentals remain in place: central banks have gone from big sellers to net buyers and major producers don’t forward sell much anymore.
The news that the Fed plans to continue flooding the system with cheap paper is just another example of why gold’s path of least resistance is to the upside. I believe an all-time high, not just a nominal high, but adjusted for inflation, could reach $2,350-2,500/ounce (oz).
The mother of all gold bull markets remains intact. The bears have once again been bloodied and they’ll go into hiding until we go through $2,000/oz and then they’ll come out again. Then the media will flock to them to tell us for the 19th time why gold has topped out.
TGR: Thanks for sharing your forecast.
Financial Adviser and Market Analyst Peter Grandich started publishing The Grandich Letter-now a blog-without a high school diploma or even a day of formal training. His ability to interpret and forecast financial happenings, which once earned him the moniker “Wall Street Whiz Kid,” has led to hundreds of media interviews. He is regarded as one of the world’s foremost market strategists. He’s also published a new book called Confessions of a Wall Street Whiz Kid.
Article published courtesy of The Gold Report – www.theaureport.com